QUICK TAKE: EARNINGS UPDATE
Q1/24: PRODUCTION & COSTS IN LINE; INKAI CHALLENGED BY SULPHURIC ACID SHORTAGE
THE TD COWEN INSIGHT
CCO reported a solid quarter operationally in line with our expectations on production and cash operating costs at the mine level. Uranium sales during the quarter were below our forecast on delivery timing. Adjusted EBITDA (including JV Inkai and Westinghouse) was in line with our forecast. Uranium production at JV Inkai remains challenged by shortages of sulphuric acid.
Impact: NEUTRAL
CCO reported adjusted Q1/24 EPS of $0.13, below TD at $0.19 and consensus at $0.34 (consensus was skewed by two significantly higher estimates). Adjusted EBITDA was reported at $345 million, including $77 million from Westinghouse (WEC) vs. our forecast of ~$349 million (GAAP EBITDA was $237 million vs. our estimate of $145 million).
CCO reported Q1/24 uranium sales of 7.3 Mlbs (TD 8.4 Mlbs), and a realized uranium price of US$57.57/lb (TD ~US$58.00/lb). In the uranium segment, CCO's attributable production was 5.8 million pounds, in line with our forecast of 5.6 million pounds. Unit cash operating costs were $19.52/lb, slightly better than our forecast of $19.87/lb. On a combined basis, produced and purchased costs were $47.40/lb, better than our forecast of ~$62.00/lb.
CCO reported uranium contracting commitments totaling 28 million pounds over the next five years, up from 27 million pounds at the end of Q4/23. Management noted that it has LT contracts in both the uranium and fuel services businesses that span more than a decade with many of the contracts based on market pricing mechanisms. As at the end of Q1/24, CCO had 11.0 Mlbs of uranium in inventory (10.3 Mlbs at Q4/23).
JV Inkai is experiencing procurement and supply chain issues, most notably related to
the availability of sulfuric acid. JV Inkai’s current production target for 2024 is 8.3 million pounds of U3O8 (100% basis). However, this target is tentative and contingent upon receipt of sufficient volumes of sulfuric acid.
WEC's net loss for Q1/24 was $123 million due to normal variability in the timing of its customer requirements, delivery and outage schedules, and the expensing of some non- operating acquisition-related transition costs. WEC’s first quarter is typically its weakest, with stronger expected performance in the second half of the year, and higher expected cash flows in the fourth quarter.
Guidance maintained. CCO expects to deliver between 32Mlbs-34Mlbs of uranium for 2024 and expects to purchase up to 2Mlbs of uranium in the market and source up to a further 9Mlbs (including from Inkai) under LT commitments.